Your Adjustable Rate Mortgage is Going Up?

Now What are You Going to Do?

For the last two years the Federal Reserve Board has been raising rates.  To make a long story short, this means higher interest rates for consumers.  This follows a period in America where interest rates have been at the lowest levels in history.  It was no surprise that many people purchased or refinanced their homes over the last several years.  Many people even purchased multiple homes.

These low rates resulted in a real estate boom like none we've ever seen.  Many people purchased their homes while values were rising and even though interest rates were at historic lows they decided to accept adjustable rate mortgages (ARMs) in order to reduce their monthly payments.  As the Federal Reserve Board raised rates the interest rate on adjustable mortgages have risen, increasing monthly payments.

To make the situation worse, tax rates and insurance rates have been increasing as property values rise.  On a $100,000 mortgage many people are finding that their monthly payments are increasing by $250.00 or more.  The problem only gets steeper as the amount of the mortgage increases.  This becomes a significant problem if the homeowner was "reaching" when they originally purchased the home.

The good news is that even though the Federal Reserve has raised short-term rates, long-term rates are still near historical lows.  At this time the start rate for many fixed rate loans are close to the the start rate of ARMs.  30-year fixed rate home loans are still a bargain.  It makes perfect sense for someone that has had a rise in their adjustable rate, or is nearing the end of their original fixed rate period, to move into a fixed rate loan.  For example, if your adjustable rate mortgage has changed to 6.5% and the rate for fixed rate mortgages is also 6.5%, your refinance into a fixed rate will lock in this rate and protect you from future adjustments. 

Even more good news is that with the rise in home prices the refinance can include cash to pay off other debts or even shorten the time that you need to pay on the mortgage.  By including high interest rate credit card debt into your refinance you can significantly lower your monthly payment, and as a bonus the interest on your mortgage is usually tax deductible.

The rise in interest rates is bad news for the homeowner in the short-run, but in the long-run homeownership gives you plenty of options for dealing with both the present and future.  Contact us today to talk to a mortgage professional and determine the mortgage options that are best for you.